Pakistan’s economy remained sluggish in 2011 due to domestic political instability, energy shortages, deteriorating Pakistan-US relations, global climate change and internal security concerns.

For the fourth year in a row, GDP growth in 2011-12 will fall below its long-term growth rate. Per capita income will increase by around 2 per cent, in sharp contrast to the 5 per cent annual growth experienced during the 2002-07 period. The investment rate dropped to 13.4 per cent — its lowest level in the last four decades. Fiscal imbalances arising out of subsidies to loss-making public enterprises, low tax-mobilisation efforts, inefficiency and waste in public expenditure resulted in excessive borrowing from the banking system. And when the government decided to terminate its ongoing arrangements with the IMF, the flow of external resources for budgetary support was interrupted. The shortfalls in financing were made up by additional borrowing from the domestic banking system.

Pakistan’s fiscal deficit rose to around 7 per cent of GDP, and the tax-to-GDP ratio declined further to below 9 per cent. New inter-governmental fiscal arrangements that favour provincial governments in the allocation of the country’s divisible tax pool further exacerbated Pakistan’s fiscal situation. Although growing expenditure on defence, debt servicing, internal security and energy fall within the domain of the federal government, its share of taxes has gradually receded and now represents only 42.5 per cent of the total tax pool. This disconnect between the burden of expenditure and the accrual of revenue has intensified fiscal imbalances, as the provincial governments have little incentive to raise additional revenues from their own sources, while they can spend quite liberally in the absence of constraints and controls. Inefficiency and waste in public expenditure have therefore become commonplace, as the absorptive capacity of the provincial governments has not kept pace with the growth in revenue allocated to them.

Inflation in 2011-12 is projected to remain at around 12 per cent, which is beyond the acceptable threshold for the Pakistani population, and much higher than the long-term rate. The government’s heavy reliance on borrowing from commercial banks crowded out private-sector credit and complicated the transmission of monetary-policy signals in the allocation of credit. Private-sector credit grew by only 4 per cent, while credit to the federal government by commercial banks expanded by 74.5 per cent. In an economy where the private sector is the main driver of economic activity and generator of employment, such a situation has naturally become a source of serious concern.

The spill-over of fiscal imbalances into the energy sector was another impediment to the economy’s revival. The circular debt between buyers, suppliers, refiners, producers and consumers of electricity has disrupted the normal business cycle. While the peak-load demand has increased substantially, constrained generation and distribution due to fuel shortages, gas shortfalls and liquidity crises have placed a heavy cost on industry and exporters. The capacity utilisation rate of public-sector generation companies fell to 25 per cent, while the small- and medium-enterprise (SME) sector is suffering the most as they lack any recourse to captive power supply, unlike large enterprises. The banking sector’s non-performing loans to the SME sector have also risen because of the low capacity of these enterprises to service their debt.

Pakistan-US relations suffered a serious setback after 2 May when Osama bin Laden was captured and killed by US Navy SEALs in an operation undisclosed to Pakistani authorities. The NATO attack on Pakistani border posts in Mohmand Agency in November triggered strong reactions in Pakistan against US and NATO forces. The retaliatory action taken by Pakistan to have the Shamsi airbase vacated, and the stoppage of NATO supply trucks headed to Afghanistan, did not fit well with US public opinion. The freezing of US$700 million in assistance to Pakistan by US Congress and stalled reimbursements from the Coalition Support Fund added fuel to the fire. The results of public opinion surveys carried out in the two countries show the majority of Americans have a negative view of Pakistan, while over 85 per cent of Pakistanis consider the US in a similarly negative way.

Pakistan also experienced floods for the second year in a row. The 2011 floods were limited to the southern province of Sindh, unlike the 2010 floods which devastated the whole country. But the combined damage to livelihoods and property by the two sets of floods is estimated at US$10 billion — almost 5 per cent of GDP.

Internal security concerns in 2011 were not confined to the Taliban and jihadi attacks or suicide bombers. The year also witnessed an eruption of urban violence in Karachi, Pakistan’s business capital and largest metropolitan area. The targeted killings of workers from two rival political parties disrupted normal life in the city for several months. Eventually, the Civil Armed Forces were called in to assist local police. The situation was brought under control and the city has since remained calm.

The year 2011 was particularly tumultuous for Pakistan’s economy, society and politics, but 2012 does not seem to be shaping up much better — election campaigning to begin this year will make the management of Pakistan’s economy even more difficult.

Ishrat Husain is the Dean and Director at the Institute of Business Administration, Karachi, and served as a Governor of Pakistan’s central bank from 1999 to 2005. 

This is part of a special feature: 2011 in review and the year ahead.

1. Assessing the tragedy of the Pakistan floods
2. Pakistan: lots of headlines, little progress
3. Pakistan: A year of extraordinary challenge

The global financial crisis and the climate crisis are twin concerns: we cannot solve one without solving the other.

Green growth must be recognised as part of the solution to the current global financial crisis. To overcome these dual problems, both developed and developing countries should progress to a greener model of development, and move beyond traditional ways of thinking about these issues.

The global financial crisis is to some extent a crisis of the traditional development model that brought prosperity to the industrial world and which is now bringing ‘prosperity’ to the emerging world. Consumers in industrialised nations devour cheap goods that are often produced by developing countries in an emission- and resource-intensive way. As a result, developing countries achieve rapid growth through producing and exporting these emission-intensive goods. On the surface, it looks like a ‘win-win’ situation; the industrial world has high standards of living, and the emerging world has impressive GDP growth, foreign reserves and sovereign bonds. But this results in global imbalances, and these in turn have led to the global financial crisis. 

There are two major reasons why green growth is difficult in this context. First is the failure of conventional analysis on climate change. This analysis sees carbon mitigation as conflicting with economic growth. It fails to recognise the possibility that mitigation may drive the economy to become even more competitive, such that countries undertaking strict mitigation policies will benefit economically. In this sense, mitigation could become a form of self-interested behaviour for key countries. Second, since green growth is not yet a widespread reality, policy makers usually see ‘green’ as a risk and are reluctant to take decisive action.

But mitigation and green transformation represent enormous opportunities. Green transformation is a comprehensive and fundamental transformation of the development pattern established during the Industrial Revolution. It includes social, economic, environmental and political transformations — not just the adoption of a few cutting-edge green technologies, as some seem to think.

Responding to doubt over green-growth potential requires us to revisit old energy debates. Most economists are not concerned about the eventual exhaustion of fossil fuels, since based on economic logic they believe there will be a strong incentive to invent or find alternative energy when fossil fuels begin to run out. These incentives will guarantee green growth in the future. But now, with the current climate and financial crises, we cannot afford to wait for green growth to occur organically further down the track — we need immediate action to find solutions. Global carbon mitigation will ensure the ‘natural process’ of green growth happens earlier, and this new reality must be addressed within established energy narratives.

In China, more and more people have realised the opportunities green growth represents. Green transformation is not just seen as a burden — it is also seen as a new source of growth. Compared to industrial economies, which to some extent are locked into a high-carbon economic structure, China can still gain the ‘late-comer’s advantage’ in avoiding lock-in effect and promoting green growth. This is the key message in a forthcoming green-growth report being jointly produced by the Development Research Centre (the Chinese government think tank) and the World Bank. And affected as we are by these twin crises, the world urgently requires a new breed of great thinkers and visionary politicians who are capable of moving beyond the current economic and political rut.

Yongsheng Zhang is Senior Research Fellow at the Development Research Centre of the State Council, China.

1. Financial crisis an opportunity to move on climate change
2. Financial crisis driving emissions up or down?
3. Climate finance: Getting to $100 billion a year by 2020

Agreements achieved in the early morning of 11 December in Durban, South Africa appeared to salvage the UN climate talks — but have also raised questions about the commitment and capability of countries around the world to urgently tackling climate change.

After two weeks of difficult negotiations, governments involved in the 17th session of the Conference of Parties (COP-17) agreed to extend the Kyoto Protocol and negotiate a binding agreement for all countries to cut greenhouse gas (GHG) emissions.

These agreements, known as the ‘Durban Platform’, also include the implementation of the Green Climate Fund, the establishment of an Adaptation Committee, and the further development of REDD+ (helping to reduce emissions from deforestation and forest degradation).

But the results of Durban’s climate negotiations need to be cautiously analysed, since they could potentially have different implications for the planet generally and developing countries like Indonesia more specifically. Whether Durban resulted in decisions which clearly translate into global action to cut GHG emissions — and to financially and technologically support mitigation and adaptation in developing countries — is crucial to Indonesia.

Developing countries in Durban, for instance, managed to have developed countries agree to the inclusion of a second commitment period of the Kyoto Protocol, which will commence in January 2013, as part of the Durban Platform. This will avoid a gap at the end of the Protocol’s first commitment period, ending in 2012. But the Protocol, having set binding targets for 37 developed countries to reduce GHG emissions to 5 per cent below 1990 levels by 2012, may lose its significance in the second period since some countries like Canada, Japan and Russia are reportedly unwilling to take part. And with the US still opting out, the Protocol will likely only achieve small reductions in GHG emissions.

The Durban Platform also included a roadmap to negotiate a new global treaty covering all countries to reduce GHG emissions. Negotiations for this treaty are expected to conclude by 2015, and the treaty will come into force from 2020. But many climate analysts are not convinced by the direction of this particular agreement. Although covering both developed and developing countries, including Indonesia, the projected emissions resulting from this treaty — based on the current pledges made by these countries since Copenhagen COP-15 in 2009 — may lead to a global average temperature rise of more than 3.5 degrees Celsius. This means that the future of people all around the world, and particularly in vulnerable countries like Indonesia, is at stake.

Consequently, new commitments and action to address the ‘emissions gap’ are needed, so the planned treaty can effectively tackle climate change. By the end of Durban, there were no new pledges for stronger emissions reductions. Additionally, waiting until 2020 for the treaty to take effect may be too late; there is a huge risk that the limit of emissions in the atmosphere will already have been reached, such that actions to stabilise the climate will be next to impossible and too expensive.

A formal structure for the Green Climate Fund — and a work plan by which it will operate, mobilising funds from both private and public sources — was also included in the Durban Platform. A number of countries signalled their readiness to contribute to the fund, but realising their promises may prove daunting — especially in the wake of the global financial crisis. This situation has left many unanswered questions for developing countries, since the fund was created to support policies and actions aimed at addressing climate change in these states.

Also, the negotiations on finance, specifically for the Green Climate Fund, have not resulted in the establishment of a specific funding window for REDD+ at the global level. If agreed to, this would provide significant support for tropical-forest nations, including Indonesia, to further develop their REDD+ programs at national and local levels. Significantly, Durban did produce an agreement exploring a variety of financial sources — ranging from public and private finance to market mechanisms — which could lead to financial support for REDD+. This agreement could not only open the door for new and long-term investments in REDD+, but also help ensure the future of investments already in place. But the rules pertaining to safeguards in the REDD+ decision appear to be weak, especially when it comes to rules on protecting indigenous communities and biodiversity. This may undermine the credibility of REDD+ and make it unattractive to investors.

Another positive decision reached in Durban, especially for vulnerable countries like Indonesia, is the establishment of the Adaptation Committee, which will coordinate adaptation activities on a global scale.

Overall, the Durban climate talks have provided mixed results for developing countries like Indonesia. There was some marginal progress, but huge questions remain. Political promises and weak agreements will hardly reduce GHG emissions. Only strong decisions and real action can demonstrate the level of seriousness in addressing climate change. It is therefore imperative that Indonesia continues to work hard, unilaterally and with other countries, on climate change mitigation and adaptation. Without this, the nation’s survival and the fate of the planet looks uncertain and grim.

Fitrian Ardiansyah is a PhD student at the Australian National University, and the recipient of the Australian Leadership Award and Allison Sudradjat Award.

A version of this article first appeared here in the Jakarta Post.

1. Measuring the success of Indonesia’s involvement in Durban
2. Durban: where success will mean the avoidance of failure
3. Climate change: Where are we at globally now?

Australia has been involved for a number of years in helping developing countries adapt to the devastating effects of climate change.

But while Australia’s recently passed carbon tax has stimulated much debate, there is little to no scrutiny of how Australian money is being allocated throughout adaptation projects at a grassroots level.

For example, Australia has agreed to raise A$599 million in fast-start financing for developing countries (of which it had already allocated A$498 million by June 2011). It also contributed A$15 million to the Least Developed Countries Fund for capacity building programs in 2011, and established the A$150 million International Climate Change Adaptation Initiative (which will focus mostly on East Timor and the Pacific Islands).

But activity must not be mistaken for achievement.

In the absence of a comprehensive cross-mechanism framework, each fund coordinated under the UN umbrella adopts its own criteria for allocating adaptation assistance. The result is an inconsistent and ad hoc approach in which there is no minimum standard of equality and efficacy. As such, there is no guarantee that the money will be integrated with development processes; no certainty that corrupt politicians will not subvert its use; and no promise that it will be based upon gender-sensitive and participatory strategies.

There is no doubt that developed countries should be spending money to assist their developing partners adapt to climate change. Not only will they be hit hardest by a warming of the earth’s temperatures, but they will struggle to respond. Weak governments, lack of money and gaps in technical knowledge make these states uniquely vulnerable. But money is not the solution in and of itself.

High levels of poverty persist on the African continent, despite massive injections of aid over the decades. In large part this is due to the absence of political accountability which plagues the continent, making it difficult for money to reach the most vulnerable.

This severe lack of fiscal accountability and political transparency in countries receiving financial assistance is equally damaging to climate change-related financing initiatives. A report by Transparency International in 2011 found that where ‘huge amounts of money flow through new and untested financial markets and mechanisms’, there is a strong risk that corrupt leaders will divert such funding toward their own personal interests, undermining the success of adaptation projects.

During the latest round of climate change negotiations in Durban, Australia was quick to capitalise on its recent carbon tax success by positioning itself as a leader in the discussions. But it is now time for Australia to take the lead in developing a comprehensive cross-mechanism framework to guide the disbursement of funds at a project level.

Certainly, without adequate resources, adaptation cannot be achieved. But without guaranteeing minimum standards of quality, this money — no matter how great in quantity, or how well governed at an international level — will not translate into success in the local context.

The Australian government has a responsibility to ensure that its adaptation money is spent effectively and equitably. Domestic imperatives to do so stem from the need to maintain accountability to its taxpayers. But regionally a large number of Australia’s immediate neighbours are either low-lying island states or developing nations. Moral imperatives and the principle of common but differentiated responsibilities aside, if countries such as Tuvalu find themselves underwater or in disarray following an environmental crisis, the likely resulting conflict and exodus of refugees will have significant repercussions for Australia’s security and economy.

In the future, we need to delve beneath the numbers to consider the actual substance of adaptation assistance. By continuing to channel finance through UN mechanisms which show little regard as to how recipient countries spend this money, Australia may as well be pouring money into a black hole.

Amritha Thiyagarajan is a student at the University of New South Wales and a member of the Global Voices Australian Youth Delegation to the recent UN negotiations in Durban.

1. Regional movement on the global problem of climate change
2. Measuring the success of Indonesia’s involvement in Durban
3. Changing the international climate for global climate change negotiations

The global climate change negotiations — underway from 28 November to 9 December in Durban, South Africa — have people asking once again whether countries around the world will agree on solutions to tackle climate change.

It is also an appropriate event to assess the involvement of developing countries like Indonesia, and particularly to understand whether their involvement in this UN climate conference will significantly contribute to a successful outcome.

Durban, hosting the 17th session of the Conference of Parties to the UN Framework Convention on Climate Change (UNFCCC), will certainly pick up from where last year’s UN climate change negotiations in Cancún, Mexico, and the subsequent inter-sessional meetings left off.

But now the central challenge is to see whether governments involved in Durban will build on the progress achieved in Cancún or withdraw from this promising path and allow short-term national interests to shroud the negotiations. The Cancún Agreements form the basis of the largest collective effort to reduce greenhouse gas (GHG) emissions to date, with national plans formulated under the banner of the UNFCCC, thus helping ensure accountability.

The package encompasses finance (with the Green Climate Fund and fast-start financing), the Cancún Adaptation Framework, a Technology Mechanism (to support action on mitigation and adaptation, and facilitate low-emission economies) and a formal incorporation of REDD+ (stating clearly that the framework to address deforestation is not only about reducing emissions but also halting and reversing forest loss). It is critical that governments involved in the negotiations, especially Indonesia, lock in the progress of the Cancún Agreements and push for their implementation.

Indonesia, as a resource-rich country striving to develop its economy, alleviate poverty and deal with climate change, has a lot at stake through its involvement in these climate change negotiations. For instance, it is critical to Jakarta that further implementation of the Cancún Adaptation Framework is negotiated. Ensuring the establishment of the Adaptation Committee is the first step toward this. The committee’s establishment will send a strong signal to vulnerable countries affected by climate change, including Indonesia, that governments around the world are serious about helping these countries confront the impacts of climate change.

Indonesia also needs to work hard with other parties to negotiate the realisation of fast-start finance and the Green Climate Fund. The former incorporates pledges made by developed countries to mobilise new and additional resources, amounting to US$30 billion for the period 2010–2012, to help mitigation and adaptation in developing countries. The Green Climate Fund will support projects, programs, policies and other activities in developing countries, using thematic funding windows. But with a number of developed countries facing short-term financial challenges, negotiations on finance are likely to be difficult. Specific to the Green Climate Fund, Indonesia must work together with other tropical-forest nations and like-minded countries to lobby for a special window for REDD+ under this fund.

Tropical-forest nations such as Indonesia have already piloted REDD+. The Indonesian government has produced several policies and strategies to guide its development and implementation, including the introduction of a moratorium on new permits to convert forests and peatlands to other land uses. But this may not be sufficient. Tackling deforestation involves different actors, sectors and layers of governments. These entities are known to have competing interests over land use. Without the provision of clear incentives, it is a Herculean task to persuade these actors to change the patterns of land use in Indonesia. A special window of funding for REDD+ at a global level would certainly provide more than a moral boost for tropical-forest nations to advance their REDD+ development at a national level and on the ground.

Adding to already tough negotiations on finance, Indonesia and other developing countries must also remind parties at the Durban conference about the importance of identifying sources of long-term finance, which are needed to cut GHG emissions and support the adaptation efforts of vulnerable countries. Climate change is going to be a long-term phenomenon and countries like Indonesia will suffer if mitigation and adaptation efforts are formulated only with a short time frame in mind.

And with the need for long-term commitment and action on climate change, Durban is crucial to producing an agreement — or at least a convincing direction — toward a second commitment period for the Kyoto Protocol. This is especially urgent as the Protocol’s first commitment period — which regulates developed countries’ commitment to cutting their GHG emissions — will end in 2012. The agreement on a second commitment period to the Kyoto Protocol will also help persuade big emerging economies and other countries to set out a clear mandate for a comprehensive and legally binding agreement.

In Durban, the climate talks are at a crossroads. Governments, including that of Indonesia, and other parties have a long road ahead if they are to demonstrate their seriousness about addressing dangerous climate change. The costs of climate change — socially, environmentally and economically — are high. A delay to act will prove ruinous. Indonesia’s delegation has no choice but to commit to continuous hard work and provide real leadership to guarantee a successful outcome in Durban’s climate negotiations.

Fitrian Ardiansyah is a PhD candidate at the Australian National University and the recipient of the Australian Leadership Award and Allison Sudradjat Award.

1. Durban climate talks bring mixed results for Indonesia
2. Durban: where success will mean the avoidance of failure
3. Cancun COP16: A ‘six-pack’ for long-term cooperative action

Global climate policy reached a turning point at the 2009 Copenhagen conference.

Expectations of a binding global climate treaty were dashed; instead, all major countries made unilateral pledges to cut or restrain their greenhouse gas emissions. In reality, that was probably a more significant outcome than a binding, but weak, agreement — what counts is what countries do, not what they sign up to.

The next conference, Cancun 2010, was of value largely because it ratified the 2009 agreement, which, due to the blocking action of a small number of countries, had been noted but not formally agreed to at Copenhagen.

And so the annual climate conference circus rolls on, this year to Durban, South Africa. What should we expect of Durban?

Two points, often overlooked, need to be kept in mind. The first is that we now have an agreement on the way forward for the world to combat climate change. Countries representing 80 per cent of emissions have signed up to emissions control targets, and developed countries have promised billions in assistance to poorer countries for both mitigation and adaptation. There are still details to be worked out (and there always will be), but it is more than the current framework.

The second point is that we now have a way of regularly updating and developing the agreements already in place. For better or for worse — and one can argue the case both ways — the world has decided, at least for the foreseeable future, not to negotiate a new treaty for climate change. Instead, it depends on the less formal, but also less binding, approach of relying on decisions made at these annual meetings, as they are officially recorded and agreed to by all parties.

These two points imply that there will be no major breakthrough at Durban — because there is no major breakthrough to be had. Successful annual climate change conferences would be those which enable further detailing of agreements already in place, and, increasingly, countries to report on efforts aimed at meeting their self-imposed targets. It is a process of building confidence and trust.

The expectations of many in the media and some in politics are very different. There is no shortage of commentators who want to build up Durban, or rather set it up for failure, by saying that it will be a success only if there is a breakthrough.

Although we should not expect a breakthrough, and should not require one in order to judge Durban as a success, this does not mean Durban cannot fail.

The progress over the last few years has only been possible because disagreements on other issues have been set aside. In particular, there is a fault line in the negotiations between those who want to see a second commitment period for the Kyoto Protocol (a so-called Kyoto II), and those who do not. As the first commitment period (that is, the first period in which countries commit to reduce their emissions) expires in 2012, this issue is pressing.

Developing countries, including the powerful BASIC group (Brazil, South Africa, India and China) want to see a second commitment period. They view the Protocol as the cornerstone of international action on climate change, which should be sustained rather than allowed to fade away.

Those who disagree are largely those to whom the first commitment period applied, namely, the rich countries. The US has not ratified Kyoto. Canada, Japan and Russia did, but have already declared they will not take on a second commitment period. That leaves Europe, Australia and New Zealand. They have not ruled out a second commitment period, but their support is conditional on other major emitters also promising to take on legally binding commitments. There is no sign of this happening.

EU climate commissioner Connie Hedegaard stated recently: ‘Some seem to think that if only Europe took a second commitment period, that would make Durban a big success. The world should not fool itself. It’s only interesting to keep Kyoto alive if somebody is following. Europe represents only 11 per cent of global emissions. What will the other 89 per cent do?’

Europe will only sign onto Kyoto II if other countries follow suit, and agree to sign on to a similarly binding agreement in later years. But there is no sign that either the US or the BASIC countries are willing to make such a commitment. Moreover, Europe faces the possibility of severe recession, and there are even fears that Europe might break apart politically. It seems impossible that the EU would promise to sign on to Kyoto II at this point in time. And without the EU, Kyoto II simply will not happen.

China has signalled preparedness to consider a legal framework for developing-country targets at some point in the future. But this is conditional on Kyoto II and the US taking on legally binding targets. And whether China is prepared to go beyond domestic laws to a binding international treaty is still unknown.

All in all, there are so many ifs and buts that an agreement on Kyoto II is not a likely scenario, nor is it the outcome by which Durban should be judged. The real test for Durban is whether the world can continue to entrench and progress its newfound, bottom-up approach to climate change. This requires Durban to avoid an implosion over disagreements concerning Kyoto’s future and its alternatives. Avoiding this will in itself mean success.

Stephen Howes is Director at the Development Policy Centre, the Australian National University. Frank Jotzo is a Senior Lecturer and Director at the Centre for Climate Economics and Policy, the Australian National University.

Earlier versions of this article appeared here on the Development Policy Blog and here in The Australian

1. Measuring the success of Indonesia’s involvement in Durban
2. Durban climate talks bring mixed results for Indonesia
3. The politically possible: How to achieve success in Copenhagen

Indonesia is among the world’s largest greenhouse gas emitters, and it has committed to cut its carbon footprint.

Can Indonesia achieve its goals, what is its role in the region, and how could developed countries assist?  Indonesia’s government has stood by its emissions target announced at a 2009 G20 summit. Just last week the President stated that he would ‘dedicate the last three years of [his] term as President to deliver enduring results that will sustain and enhance the environment and forests of Indonesia’. But, as always with such ambitious announcements, many observers are doubting how much will actually come of it.

The target is for a 26 per cent reduction relative to business-as-usual at 2020  undertaken by Indonesia unilaterally, and up to 41 per cent with international assistance. This is a substantial undertaking when taken at face value, even in comparison with other major countries. But what it actually means will depend on the definition of the business-as-usual baseline. An earlier government document submitted to the UN assumes fast growth in emissions under a business-as-usual scenario. If chosen as the official baseline, this would make the target less ambitious and affect its international credibility.

The overwhelming share of reductions over the next decade is likely to come from the land sector.  This emphasis is reflected in a list of emissions reductions programs to be initiated and financed by the Indonesian government, announced last month.

But if large-scale and sustained carbon savings are to be made, this must go hand-in-hand with a more holistic approach to land-based industries. Greater emphasis would need to be placed on local environmental factors like watershed protection, local economic development that is socially inclusive, and promoting models of land use that are productive over the long run — not just profitable in the short term. ‘Green growth’ thinking along these lines is evident in some provinces, districts and central government ministries. There is even a new national motto which demands development be ‘pro-growth, pro-poor, pro-jobs and pro-environment’.

But this is set against the strong influence of industry and parts of the government and bureaucracy that have a strong vested interest in the status quo. This difficult political economy is, of course, not unique to Indonesia; it has played out in the US and Australia in recent years, with very different results. What counts on the ground though is economic opportunity and enforcement of laws and regulations. Protecting forests and peatlands, for example, will require substantial financial incentives for businesses and local governments. Reforms to the tax system, along with intergovernmental fiscal transfers tied to environmental outcomes and properly enforced regulatory measures, could achieve this — especially if they are coupled with alternative strategies to promote local economic development.

The longer-term challenge is in Indonesia’s energy system. Industrial energy use, electricity use in public buildings and homes, and transport are all growing rapidly as the country moves up the development ladder. The solution involves a shift from coal to gas, expansion of renewable energy like geothermal power, better energy efficiency and better transport systems. But making the shift requires policy reform that is difficult both technically and politically. Power sector reform has been on the agenda for decades and energy subsidies have, to date, only partially been removed. Copious amounts of additional investment will also be needed: what role can developed countries in the region play in helping Indonesia achieve its goals?

Aid can be important, and plenty of donors are (or want to become) active on climate change in Indonesia. The most promising area for aid is targeted capacity building, helping Indonesia reap the opportunities that arise in policy reform and in access to international funding. Trialling implementation options is also important, for example testing payment schemes for better land management. This carries risks, but could have large returns where successful models are identified. Large scale concessional finance, for example through the World Bank, has a role in facilitating clean energy investments. But the big game down the track could be carbon markets. A number of developed countries will be looking to invest in emissions reductions in developing countries, as part of their own climate change commitments. In most advanced countries, emissions reductions at home — beyond a certain point — will come at a higher cost than cutting emissions in developing countries. Australian annual payments for overseas emissions reductions could be as high as AU$3 billion dollars at 2020, according to government modelling. While the actual amount of market flows could be lower, this figure is in the ballpark of what Australia might commit through its Copenhagen climate financing commitment.

Large flows could also become available from Japan, South Korea, California and elsewhere. It will be natural for these and other countries to turn to Indonesia as a key ‘supplier’ of emissions reductions. But more preparatory work needs to be done in Indonesia before this can happen. Trading emissions reductions across borders requires reliable monitoring, confidence in institutional frameworks, as well as sound policies and consistent implementation. After all, investors will want confidence that they are in fact supporting change. And to the extent that Indonesia is successful in addressing climate change, it gives the country a natural leadership position on the issue in Southeast Asia.

Dr Frank Jotzo is Director at the Centre for Climate Economics and Policy, Crawford School of Economics and Government, the Australian National University.

This is an abridged version of a paper presented at the 2011 Indonesia Update Conference, the Australian National University.

1. An important international climate change funding proposal from China
2. Changing the international climate for global climate change negotiations
3. US: Waxman-Markey Bill changes the landscape of international climate change negotiations

How India will negotiate the issue of trade and sustainable development at international fora with its new environment minister, Ms Jayanthi Natarajan, is a question that concerns many.

Former environment minister Jairam Ramesh had fought the issue tooth and nail in different international platforms, blaming both developed and developing countries for their brazen exploitation of the environment in the guise of public good. But he made it clear that international trade and sustainable development are inseparable, and something no nation can afford to lose sight of — especially at a time when both reinforce each other. Ramesh recently said: ‘We need both and need to establish a trade-off between the two’.

Jayanthi Natarajan, Ramesh’s successor, will echo the same view but perhaps like to handle the issue in a different manner. The important point is that international trade is still a viable medium for fostering sustainable development. And the economic argument that ‘trade promotes growth and growth reduces poverty’ remains fresh in the minds of politicians and policymakers.

Growth of international trade is a significant tool for attaining sustainable development. Acceleration of trade requires the creation of new markets, exposure of domestic firms to international practices, introduction of new investment and adoption of new technology. These initiatives create opportunities for sustainable growth and development for large numbers. But the application of such technology and investment in becoming eco-compliant and environment-friendly remains a matter of concern. In major fora it is argued that the adoption of new and more efficient technologies help reduce pollution and the production of waste. This also increases the efficiency of resources and consequently expands trade.

Today the issue of trade and sustainable development faces a number of challenges. Unresolved trade and sustainable development issues, coupled with the challenge of implementing an equitable rules-based global trading system, are proving difficult to resolve through negotiation. Such an exercise demands compliance with national, bilateral and regional policies and agreements which ultimately present enormous challenges for all countries.

Challenges of this nature need greater urgency for developing and developed countries to generate capacity and strategy for pursuing sustainable development in trade and investment policy and practice. Objective and accurate research, analysis and capacity building for policymakers of developing and developed countries need to be acheived. This would expose them to policies that address social issues such as poverty alleviation, access to health and education and income opportunities — all while ensuring environmental management that works in balance with economic and trade development.

If environmental challenges are left unmitigated, it will inevitably affect the poorest, rendering trade unsustainable. The moot point is how to ensure the benefits of trade percolate down to the bottom. There is a worldwide increase in globalised economic activity, huge environmental degradation and widening income inequality. So achieving sustainable development will critically depend on proactive resolution of the issues at domestic and international levels.

The task before India’s new environment minister is daunting. India’s population is likely to reach 1.6 billion by mid-century. This would create massive pressures on land use for mainly-rural livelihoods, urban planning, public health, energy and food production. The convergence of these human pressures with those of climate change and sustainability will propel India to think of a green-growth path, like what Jairam Ramesh had in mind. It would require careful consideration of the trade-offs between development and conservation on a case-by-case basis. The social and political pressure from communities having to contend with the vagaries of environmental degradation is slowly forcing the government to tilt its policies towards adopting greener development. This would mean putting a cap on speedy industrialisation. Besides, international pressure is also building on India to reduce emission levels, indirectly hinting at slowing down its process of industrialisation.

Confronted with all this, will Natarajan be as bold and steadfast as her predecessor in standing up to the pressure of domestic industry? And how will she address India’s position globally? What is clear is that India will need to tread carefully on a path representing a balance between international trade and sustainable development.

Dr Anil Kumar Kanungo is a member of the Indian Institute of Foreign Trade, New Delhi.

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3. Global challenges from China’s rise

With the wide acceptance of global warming as both real and potentially problematic, geoengineering — defined by the UK’s Royal Society as ‘the deliberate large-scale manipulation of the planetary environment to counteract anthropogenic climate change’ — is currently experiencing a surge of interest.

Despite the differentiated nature of the challenges, the greatest risk and uncertainty for the Asia Pacific region will most likely arise from changes in the frequency of extreme weather events, which are very difficult to manage. The discourse has thus far been driven by scholarly communities in Europe and the US, perspectives from other key regions such as the Asia Pacific are lacking.

Geoengineering techniques can be split into two broad categories. The first category comprises techniques aimed at the removal of carbon dioxide (CO₂) from the atmosphere, such as carbon sequestration through CO₂ air capture and ocean iron fertilisation. The second category consists of techniques to reflect solar radiation, such as the injection of sulphate aerosols into the stratosphere to mimic the cooling effect caused by large volcanic eruptions. Advocates of geoengineering argue that it could be a useful emergency defence against environmental damage in the case of climactic shifts. Detractors argue that introducing geoengineering as the new Plan B to tackle climate emissions may create even greater problems, since the full effects of various geoengineering techniques are not well understood. Geoengineering could also be perceived as a moral hazard, as there is the possibility that it could decrease the political and social impetus to reduce carbon emissions.

The Intergovernmental Panel on Climate Change (IPCC) is currently assessing, for the first time, the scientific basis as well as the potential impacts and side effects of geoengineering proposals in their Fifth Assessment Report, scheduled to be finalised in 2014. As such, the Asia Pacific region needs to participate in the debate by identifying and assessing the risks and opportunities of geoengineering techniques.

At least three initial steps deserve particular mention.

First is regional consultations to map the main national positions on the different geoengineering approaches among Asia Pacific countries that are likely to be at the forefront of deployment and/or impact. The Centre for Non-Traditional Security Studies, in cooperation with the Oxford Geoengineering Programme, is currently facilitating such a dialogue by convening a regional pilot workshop in Singapore in July.

Second is scenario-building in order to identify the governance demands of geoengineering. In particular, the following questions should be addressed:

• What processes do we need to govern geoengineering, from further research to potential deployment?
• What are the existing legal and institutional mechanisms to govern geoengineering research, development and potential deployment? What would be the optimal regulatory framework?
• How would we manage the uncontrolled use of geoengineering for peaceful purposes, for example, the pre-emptive use of solar radiation management techniques by a consortium of countries with threatened coastlines? How would we deal with intended or unintended negative effects?
• How would we define ‘climate emergency’ for the purpose of triggering the deployment of geoengineering technology?
• What are the criteria that would define the success and failure of geoengineering deployment? For example, how would we determine at what level of carbon dioxide (CO₂) the deployment of geoengineering technologies should cease?

Third is public and civil society engagement to facilitate a regional dialogue on the known and unknown consequences of geoengineering

Advancing the development and implementation of geoengineering technologies will require a globally-coherent regulatory approach to the field. The current lack of any regulatory framework opens up the possibility that the technology could be applied unilaterally by single countries, businesses or even individuals, without concern for side effects or trans-boundary implications. It will be important to reduce the possibility of situations where there will be winners and losers associated with the implementation of any new geoengineering technology. The development and exploitation of geoengineering technology may therefore require that a set of governance mechanisms be established in accordance with the potential risks and benefits to societies across different regions.

With regard to a tentative set of normative rules and principles to govern geoengineering from research to potential deployment, geoengineering should be regulated as a global public good within a well-defined public interest framework. Such a public interest framework should be defined via broad public participation and consultation, globally and regionally. Geoengineering research should also be subject to disclosure and open publication, and there should be an independent assessment of the possible impacts of any geoengineering research enterprise. Further, geoengineering governance arrangements should be in place before the deployment of any new technology.

The limits of mitigation and adaptation in responding to climate change, coupled with the risk of reaching or passing tipping points in the Earth’s climate system, make it extremely difficult for policymakers to categorically exclude the geoengineering option as a potential Plan B for tackling carbon emissions. Decisions on the implementation and regulation of geoengineering may well be the call of our generation. The Asia Pacific needs to find its voice in the debate. Let’s argue and choose wisely.

Jochen Prantl is Senior Research Fellow in International Relations, Research Fellow of Nuffield College, University of Oxford, and Visiting Senior Fellow and Coordinator of the Energy Security Programme at the Centre for Non-Traditional Security Studies in the S Rajaratnam School of International Studies, Nanyang Technological University.

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2. Tiddlywinks on climate change
3. Financial crisis an opportunity to move on climate change

Climate change is widely recognised as the greatest challenge confronting our generation, and one which, if not addressed, may have catastrophic consequences.

Recent science reveals that the window for effective mitigation is short.

As to how large cuts in carbon emissions might be achieved, attention has focused on the role of a global climate change agreement. Although some progress was made at the Cancun Climate Change Conference, agreement concerning an emissions trading scheme seems as remote as ever.

Even if such a market mechanism were agreed upon, it would be insufficient to resolve the crisis. Carbon pricing does not address the large market failures undermining research and development in climate mitigation, such as incompatibility with existing infrastructure and weak intellectual property rights protection. Nor would such a market mechanism sufficiently accelerate the development and dissemination of low carbon technologies.

In examining mitigation options ‘beyond the market’ the single most important sector is energy. Energy production and consumption accounts for over 40 per cent of greenhouse gas emissions, and without achieving a drastic transformation in the energy sector, climate change mitigation will be close to impossible.

This is every bit as complex a challenge as achieving a climate change agreement. It raises questions: how can resources be pooled to create a global technology development fund? How can intellectual property constraints on the use of new technology be minimised? And how can developing countries be effectively integrated into a global energy strategy? Such questions are about the appropriate allocation of scarce resources and the coordination of collective action. As such, they are all, fundamentally, questions of regulation and governance, concerned with ‘societal steering’.

Unfortunately, current energy policy frameworks fall far short of what is needed to transition to a low carbon economy. Within Asia, some of the challenges can be illustrated by the circumstances of Indonesia, the world’s second-largest thermal coal exporter and currently the ‘darling of the West’, having made commitments to climate change mitigation and to renewable energy.

However, there is a tension between energy security (having a reliable and adequate supply of energy at reasonable prices) and climate change mitigation. With large coal reserves and a growing demand for electricity, building more coal-fired power stations offers a relatively low cost and reliable means of increasing electricity production. While this makes sense as a matter of political expediency, it runs counter to Indonesia’s commitments to reduce its greenhouse gas emissions.

Second, there are perverse incentives. Fuel prices are heavily subsidised, and removing or even reducing these subsidies would put the government at serious political risk. This makes a transition to renewable energy extremely difficult. Alternative fuel sources, such as Indonesia’s vast geothermal potential, cannot be realised because, particularly in early stages of development, they cannot compete with the subsidised fossil fuel prices set by the state electricity supplier.

Third, there is tension between climate change mitigation, energy policy and economic development. For example Indonesia, along with Malaysia, produces about 90 per cent of the world’s palm oil. Widespread deforestation is the price for this development, but with Indonesian palm oil generating some $14 billion per year further growth in deforestation is anticipated. Climate change mitigation continues to be trumped by the demands of resource exploitation.

Fourth, no government can deliver on its promises without harnessing state institutions to implement them. The Indonesian bureaucracy lacks the capacity and resources to do so. Key energy policies are not well defined, nor is it clear how energy governance is handled across the bureaucracy.

Of course, much depends upon an individual country’s energy profile and capability. By way of contrast, Korea, which imports more than 90 per cent of its energy, has a strong incentive both to increase energy efficiency and identify low carbon sources of energy (primarily nuclear power) to reduce supply risk and its energy bill. China, which is similarly heavily energy dependent, is also taking energy policy seriously (notwithstanding its posture in international negotiations) and may well become an important energy innovator in future years.

But the central challenge of energy governance — meeting growing global energy needs while transiting to a low carbon economy — must be engaged in globally and regionally. What is needed, in the words of the International Energy Agency, is ‘radical and co-ordinated policy action across all regions’.

Within Asia, regional agreements such as the ASEAN Petroleum Security Agreement, (which commits signatories to cooperate in times of shortage and oversupply) might also be expanded. The Trans-ASEAN Gas Pipeline project is already in train and will be important in terms of regional energy security. An ASEAN Power Grid project is also being contemplated.

Notwithstanding some modest individual achievements, acting collectively on matters of collective interest on the scale that will be necessary has so far proved an insurmountable challenge. States have guarded their autonomy over energy issues, especially energy security, with the result that global and regional institutions, norms and organisations are weak or absent. Strikingly, no UN organisation has the responsibility to regulate energy policy internationally (apart from the International Atomic Energy Agency).

In the case of the many developing countries that lack the economic and the technological capacity to bring about an internal energy transition, it is only with considerable assistance and support that change can be achieved. The level of support currently provided by the World Bank, Asia Development Bank and national aid agencies does not remotely approach this level. Whether a sufficient proportion of the $100 billion Green Climate Fund, the key outcome of Cancun, will be allocated to assist the transition to a low carbon economy in developing countries remains to be seen.

Neil Gunningham is Professor and Co-Director of the Climate and Environmental Governance Network within the College of Asia Pacific’s Regulatory Institutions Network at the Australian National University. His current research (in collaboration with Professor Peter Drahos) is in global energy governance.

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3. Indonesia’s energy challenge